US Savings Bonds

Archive for December, 2006

Question: Can anyone help with bonds interest rate?

here is the problem!
You can buy a US government savings bond for half its face value today and at maturity in 12 yers you’ll receive the full fave or par vaule. that means you can buy a $100 par vaule savings bond for only $50 today and in 12yrs you can redeem it for $100. what interest rate are you getiing in this deal?

I’m VERY confused. if you can answer please show your work to better help me understand. Thanks in advance!

Answer: You pay $50 now in exchange for getting $100 in 12 years. That is a zero-coupon bond, meaning there are no interest payments along the way.

$100 = $50 X (1+rate)^12

Now just plug that into Excel and use the solver function. The interest rate is 5.95%.

Redeem Savings Bonds for Education (continued)

What is modified adjusted gross income (AGI)?

Modified AGI is composed of adjusted gross income (AGI) without taking into account the savings bond interest exclusion. The interest exclusion of the savings bond and phaseout, if any, is computed on IRS Form 8815 Exclusion of Interest From Series EE US Savings Bonds and Series I US Savings Bonds. 

Married filing separate taxpayers do not qualify for the interest exclusion of US Savings Bonds.

The 2005 and 2004 modified adjusted gross income (AGI) thresholds are: 

Filing Status	Full Exemption	Pro Rata Phase Out	No Exemption
Married Filing Joint (2005)	Under $91,850	$91,850 – $121,850	Over $121,850
Married Filing Joint (2004)	Under $89,750	$89,750 – $119,750	Over $119,750
Single (2005)	Under $61,200	$61.200 – $76,200	Over $ 76,200
Single (2004)	Under $59,850	$59,850 – $74,850	Over $ 74,850

As long as the redemption proceeds (principal and interest) do not exceed the qualified higher education expenses incurred during that year, all of the redeemed interest is tax exempt if otherwise qualifying. 

If the redemption amount exceeds expenses paid, a pro rata calculation is performed to determine what portion of the interest will be taxable. 

Example:
Assume that Series EE US Savings Bonds are redeemed for $9,000 ($6,000 principal and $3,000 interest) and the qualified higher education expenses paid are $7,500. 

The taxpayer would be eligible to exclude $2,500 of interest ($3,000 x ($7,500 / $9,000)). $500 of the interest is taxable. 

The taxpayer is responsible for all interest record keeping and the filing of IRS Form 8815 to calculate the exclusion.

Question: best way to invest before college?

I got all of my Savings Bonds and some are earning good interest(4%), but others are making less than 1%. I put all of them in a bond calculator, and they came out to $1100.

I was wandering if i should leave them all in bond form or try to find a money market account, but I don’t think $1100 is enough for that.

What should I do with it?

Answer: You can buy a money market account with $1,100, but the problem will be finding one that will yield more than 4%.

Ally bank was the highest yield I found on an account. 2% APY on bank CDs.

The Best Saving Accounts Available Today!